The IRS is paying closer attention to funds that aim to slash taxes. What could be next for investors
'Tax aware' ETFs and an elaborate ETF conversion maneuver aimed at sharply cutting tax liability are in the agency's crosshairs.
TL;DR
- The IRS and Treasury are targeting two ETF strategies: Section 351 conversions for appreciated assets and "tax aware" funds.
- Concerns include strategies that use straddles to generate capital gains and ordinary losses, and no-dividend strategies.
- The IRS questions the legitimacy of ETF conversions when the primary goal is tax avoidance rather than diversification.
- Investors using these strategies should be prepared to justify their reasoning and ensure the funds fit their overall investment plan.
- Documentation and understanding the risk appetite for tax savings are crucial when discussing these strategies with a CPA.